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Tuesday, March 14, 2017

What it takes to Double Farmer’s Incomes in India?

Shantanu De Roy

The Union Budget presented on February 1 by Finance
Minister, Mr Arun Jaitley has announced certain measures for agriculture sector
in India. The question is, whether these are enough to realise the dream of
Prime Minister Mr. Narendra Modi to double farmer’s incomes by 2022? apparently, doubling of farmer’s income which
implies making agriculture a profit earning economic activity is always
welcome. This is because agriculture is the main source of employment in India
and the nation has been experiencing agrarian distress over the last quarter
century. Thus, livelihood security of substantial number of people, associated
with agriculture, has been jeopardised with prolonged agrarian distress from
which no region has been spared. While the nation at large has been
experiencing agrarian distress, reflected in a spate of farmer’s suicides, yet
Indian agriculture over the last 25 years has not been characterised by
undifferentiated misery in which all
sections of the agrarian community have been adversely affected. Indeed, a
small stratum at the top has been continuing with the process of accumulation
from cultivation of agricultural crops; they have been beneficiaries of policy
measures announced by the state even when the policy regime, overall, has
changed with initiation of reforms since early 1990s. However, the process of
accumulation of a minuscule section has been insufficient to take agriculture
sector as a whole out from low growth trajectory or to mitigate the sufferings
of a substantial number of rural populations. Thus, policies to further
increase/doubling incomes of these sections will only make agricultural growth
more iniquitous. The question then becomes is whose incomes it is that the
national leadership and policy makers are thinking about? is it about those
very few who are already making substantial gains from production of
agricultural crops or an overwhelming many, who are finding it extremely tough
to eke out a living? this is important because the agrarian community that includes
peasants/farmers are not homogenous entities and there are wide variations in
the degree and nature of participation of different sections of the agrarian
population in input and output markets across the nation. Any policy initiative
to meet the objective of doubling/increasing farmer’s incomes must take this
aspect into consideration. In fact, without it, the objective per se is meaningless. This essay is an
attempt to analyse factors that can potentially
raise agricultural incomes of poorer sections of the farming community and
can lead to broader based agricultural and overall economic growth.

Implementation of land reform

Land is the fundamental means of production in an agrarian
society. Also, land is the source of power apart from being an important source
of livelihood security in an agrarian society. Thus, concentration of ownership
rights over land among the economically and socially powerful sections in rural
areas results in concentration of power among a small minority in rural areas.
Almost all the major political formations in India, except may be for the Left
and BSP, are controlled by leaders who have ownership over disproportionate
shares of land. Land reform leads to destruction of landlordism and changes in
power relations in the countryside in favour of the working poor.Thus, land
reform entails redistribution of an important asset and incomes from the
dominant to hitherto dominated sections with wide ranging implications. It is
not only an economic but also a social and political programme.

The promise of land reform was an integral part of the
freedom struggle in India
that was not implemented by the dominant political parties that repeatedly came
to power in the Union and most of the state
governments. Till date, only four states in India,
West Bengal, Kerala, Tripura and Jammu
and Kashmir, had successfully implemented land
reform. Land reform can lead to release of productive forces in the
countryside. This is because with the possession of ownership rights of land
and elimination of burdens of rent for tenants to superior rights holders, poor
and small peasants, have more incentive to put in labour and non-labour inputs
on their land thereby leading to increases in growth in productivity and
output. Increase in incomes in agriculture can remove demand constraints, widen
up domestic market for the industry and services sector and fasten their growth
rates. The existence of surplus labour in agriculture on account of low
absorption of labour into the industrial sector has largely been due to the
existence of excess capacity in the latter which is a fall out of narrowness of
industrial base in the nation. In other words, that mobility of labour from
traditional (agriculture) to modern (industry) sector could have been
successful had there been expansion of domestic market due to agrarian reforms.
It may be noted that even a limited institutional reforms by way of zamindari abolition in the 1950s, aided
by state support in a protected economy that did not radically alter production
relations in the countryside, resulted in growth rates in agriculture which is
much higher than what was achieved in the pre-Independence periods. Thus, land reform can reduce poverty
substantially and play an instrumental role in expanding the size of market so
crucial for a broad based capitalist development. In fact, development of a
strong industrial base and widening of markets of early and late
industrialising nations owes much to the successful implementation of land
reform in these nations. There is a strong relationship between a successful
implementation of land reform and certain other policies that have been
discussed below. Land reform by giving land to the poor can not only lead to
destruction of landlordism but also results in social, economic and political
empowerment of the poor people in rural areas. Empowerment can lead to
effective political mobilization of poor people and enable them to demand for
other essential aspects of human freedom like better quality health-care,
education and food from the state.

More protection from external competition

Successful implementation of land reform in terms of
deriving sufficient material benefits depends crucially on the degree of
protection provided to poor, marginal and small cultivators from cheaper
imports of agricultural commodities. Also, demand and political mobilizations
for a more protectionist regime in favour of agrarian poor can be successfully
realised through empowering these sections as a direct fall out of changes in balance
of power due to agrarian reforms, which is particularly relevant for a
developing economy like India.
Developed countries, despite WTO diktats, have been fairly successful in
providing huge subsidies to their agriculture sector that has enabled these
nations to supply cheap imports and get market access in developing countries.
Moreover, these nations had imposed various non-tariff barriers to restrict
entry of agricultural commodities from developing countries. Elimination of
subsidies, as part of WTO rules, meant that there has been a rise in the cost
of production of agricultural crops in India. On the other hand, openness
ensured participation in international markets of primary commodities characterised
by extreme volatility in prices. Moreover, entry of a country as large as India in
international markets of primary commodities means that on the supply side
there will be huge increases, and given the level of demand, prices of
agricultural commodities will decline. This is mainly relevant for primary
commodities in which India
is a major supplier in international markets. In all, agricultural trade
liberalization has ensured the loss of viability of agriculture in India,
specifically for small and marginal cultivators. In other words, if the
government is serious in ‘doubling’ incomes of poor, small and marginal farmers
in India,
it should provide more protection to these sections from external competition
and take necessary steps to increase incomes from agriculture.

Provision of cheap credit and price support

Viability of small scale farming in India could have been increased significantly
through disbursal of rural credit to the poor cultivators in India. While a substantial number
of poor people in India that includes small, poor and marginal farmers do not
have bank accounts which severely limits their access to rural credit, even
those who have bank accounts do not receive cheap loans because banks and other
formal institutions occasionally find them to be ‘credit un-worthy’. As a
result, they are being forced to take loans for production from the informal
sector at a very high rate of interest that leads to additional increases in
cost of production. Since the first half of new millennium, there were have
been an upward trend in credit disbursals of commercial banks in rural areas.
Credit deposit ratio in rural areas had increased from 49.6 per cent in 2001 to
91.6 per cent in 2010; there has been a decline since 2010, though, it was well
above the figures attained in late 1990s. Also, there has been a rise in
agriculture and priority sector credit in rural areas during this period.
However, increase in rural credit mainly benefited the large agro-business
corporations and big cultivators. Also, there have been definitional changes
whereby credit disbursals to infrastructure funds, non-banking finance
companies and food processing industries were incorporated under priority
sector. These factors did lead to increase in the supply of finance, however,
agriculture sector in general and poor, small and marginal farmers in
particular did not benefit from this development. As a result, although, the
demand for finance remained high as was reflected in thriving of an informal
credit market with high interest rates, supply was not forthcoming. Moreover,
in an era characterised by increase in cost of cultivation and volatility of
output prices, increased supply of credit from financial institutions could
have provided cheap finance for working capital and long term investment needs
of these farmers. The corresponding growth in productivity achieved due to
investments on land would have been useful in raising output and incomes of
farmers.

In a nation characterised by interlinked factor and output
markets, dependence of rural poor on moneylenders for credit meant
exploitations of the former in land, labour and output markets. In other words,
poor sections of the peasantry, who often are net hirers out of labour, either
will have to supply labour either for free or at a wage rate that is lower than
the market wage, to repay loans of moneylenders. In the output market,
occasionally poor peasants are forced to sell their produce to the commission
agents or other market intermediaries at a price lower than market prices. In
the land market, exploitation occurs through loss of land for the cultivators
to the money lenders at throwaway prices that are typically used as collaterals
in credit contracts. Thus, financial exclusion in India impacts on the lives of poor
cultivators through myriad ways. Typically, in India, moneylenders, commission
agents and landlords or rich peasants are the same person or same group of
persons in rural areas. Control over capital enables these sections to wield
monopsonistic/oligopsonistic power in rural input and output markets.

While implementation of land reform could have led to
redistribution of an important asset and income from rich to the poor, and
consequent loss of power for these sections that could have been instrumental
in breaking down interlinkages and monopsonistic/oligopsonistic power across
markets; providing more protection from external protection would have ensured
economic benefits to the poorer sections in terms of making agriculture sector
in India profitable.

As a policy response to volatility of prices of primary
commodities in international markets to which cultivators in India have been subjected to following India’s
entry into the WTO and also on account of rising costs of cultivation due to
elimination of subsidies, price support from the state should have been
extended to all crops produced by Indian farmers. However, it is not enough to
raise MSPs uniformly across the nation. It is equally important to take into
account variations in costs of inputs used in cultivation across the nation, costs
incurred through payments of rent by poor cultivators often at very
unfavourable terms with no registered contracts, particularly when they are
tenants of land owned by big landowners, and then providing adequate rates of
returns over costs of production. In other words, there need not be a single
MSP for each crop across the entire nation. An additional factor that is
extremely crucial for proper implementation of MSP so that the poorer
cultivators can get benefits include extending the reach of procurement
agencies by way of which farmers can sell directly to them and not through
intermediaries who are either mill owners or other agents so that they do not
receive a fraction of MSPs.

Increased public investment in agriculture

Increased public investment has the potential to enlarge
the productive base of Indian agriculture. It enhances stock of capital
employed in agriculture and also plays a vital role in stimulating investments
of farmers resulting in further enlargement of capital stock in agriculture.
Thus, unlike textbook macroeconomic models that argues in terms of
‘crowding-out’ of private investment due to increased public investments, in
the context of developing economies in general and Indian economy in
particular, characterised by high unemployment and un-utilisation of resources,
public investment in agriculture actually ‘crowds-in’ private investments.
However, since the 1980s, the importance of public investment in total
investment in agriculture had been declining steadily. While the share of
public in total investment was 52.4 per cent in 1981-82, it had declined to
34.2 per cent in 1989-90 and by 2013-14 the share had declined further to 24.2
per cent. Although, there had been increases in private investments over these
years, the nature of public and private investments are such that one cannot be
substituted by the other. For instance, public investments mainly focus on
public goods like irrigation projects and rural road and electrification
networks that are not provided by private capital. Thus, any increase in
private investment will not be able to compensate the decline in public
investment in an economy like India
where basic infrastructure crucial for agricultural growth has not been lacking
even after 70 years of Independence.
In India,
irrigation accounts for a major share of capital formation in agriculture. Access to reliable irrigation water enables farmers to adopt
new technologies and intensify cultivation, leading to increased productivity
and production and greater income from farming. However, the response of the
government in terms of allocation of resources for irrigation was inadequate
and even this inadequate amount has been declining. The share of outlays on
irrigation and flood control had declined from a low of 1.4 per cent of GDP in
1981-82 to 0.6 per cent in 2013-14. While GDP had undoubtedly increased over
these years, yet these figures show that a lesser proportion of income
generated in the economy was ploughed back into the agriculture sector. The
decline in ratio shows that in terms of allocation, irrigation has not been
given any priority by the government.

Although, increase in public investment
is necessary, yet, by means, it is sufficient if one is concerned of
doubling/increasing incomes of poor farmers in India. It is equally important that
public investment is spread evenly with more focus on backward regions and
groups that had been hitherto excluded from its benefits. Starting from the
green revolution period, the second phase of agricultural growth (1967-81),
policy makers in India
have mainly focussed on the already well-off and agriculturally prosperous
regions. It had resulted in the accumulation processes of large cultivators at
the cost of increased incremental capital-output ratio (ICOR) in agriculture
which implies decline in efficiency. The strategy had paid off in terms of
increasing of incomes of richer sections of agrarian population. While, there
had been a reversal of this tendency in the third phase (1981-91), with the
meteoric rise of West Bengal as one of the best performing states in
agriculture in India,
things have started to move in the wrong direction, again, with the initiation
of economic reforms since 1991. The West Bengal experience, manifested in terms
of high agricultural growth rate in the 1980s, showed that land reforms and
democratization of rural local bodies can not only lead to political
empowerment but can potentially bring in
corresponding material and social benefits for poorer sections of agrarian
population. However, decline in agricultural growth rate in West Bengal as
elsewhere in India,
with the initiation of economic reforms, meant that petty production in
agriculture became increasingly unprofitable. It had led to the loss of land in
which Scheduled Castes, Scheduled Tribes and Muslims, hitherto the major
beneficiaries of land reform, were adversely affected. NSSO data showed that
almost two third of Scheduled Caste and Scheduled Tribe households and about
three-fourth of Muslim households in West Bengal did not cultivate land in
2011-12. In the absence of alternative employment opportunities, shifting of
workforce has taken place from agriculture to the informal sector in
non-agricultural activities that hardly provides a decent standard of living.
As a result, livelihood security of substantial sections of rural population,
mostly poor, has been threatened with the initiation of economic reforms.
Despite successful implementation of land reforms and a very strong history of
peasant movement, there has been depeasantisation and dis-empowerment of poor
people in West Bengal. Incidentally, these
developments have taken place under a regime that had a significant role to
play in terms of changing the correlation of class forces
in the countryside in favour of poor people.

High growth of agriculture in West
Bengal in the 1980s and its subsequent decline since the 1990s showed that a)
peasant agriculture can be viable if enabling conditions are provided under the
guidance of state and b) increasing public investment, per se, may not be enough; it has to be accompanied with other
conditions, most important being political and social empowerment of rural
poor.

Conclusions

To conclude, while the idea of doubling of farmer’s
incomes is crucial for the entire economy, the questions are a) whose incomes
will it be and b) how can it be achieved? this essay has tried to address these
questions. It has argued for certain policies, which, if implemented properly
can lead to not only high growth in agriculture but also bring in benefits to
substantial number of people engaged with this sector. However, successful
implementation of these policies will need political will of the policy makers.
Without, political willingness, this will remain as a mere dream.

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